Here's What the Supreme Court Could Do to Insurance Premiums In Your State

November 11, 2014

More than 800,000 Floridians would see their monthly insurance premiums rise, from an average of around $70 to an average of around $350, or roughly a factor of five. More than 600,000 people in Texas, about 325,000 in North Carolina, and another 275,000 in Georgia would see insurance premiums soar by similar amounts.

Nationwide, more than 4 million people living in 37 states would be in situations like these. Most would have no way to pay the higher bills, forcing them to drop insurance coverage altogether. Their sudden absence would destabilize insurance markets in those states, giving carriers reason to raise premiums by additional amounts or to flee the states altogether—which would, in turn, lead more people to give up insurance.

The underlying premiums for all people buying insurance on their own in these states would rise by an average of 43 percent, while the number of Americans without insurance would eventually be 7 million higher than it would be otherwise.

Based on some crude extrapolations from data and studies by leading researchers, these are the things likely to happen if the Supreme Court rules in favor of a lawsuit challenging part of the Affordable Care Act. The Court agreed to hear the case, King v. Burwell, on Friday. The central issue is the federal government’s ability to distribute tax credits, which allow people buying coverage through Obamacare's new marketplaces to pay less than full price—in some cases, a lot less. They are available, on a sliding scale, to people with incomes between 100 and 400 percent of the poverty line, or about $23,850 and $95,400 for a family of four. They are worth hundreds and, in many cases, thousands of dollars a year. Overall, approximately 6 million Americans are getting these tax credits.

But some of these people live in states like California, Kentucky, and Maryland, where officials decided to build and operate their own marketplaces. The majority live in states like Florida, Pennsylvania, and Texas, where officials handed that work off to the federal government. The section of the law authorizing the government to distribute tax credits doesn’t mention these federally run marketplaces explicitly; it mentions only marketplaces “established by a state.” The lawsuit claims this omission was intentional and that, as a result, no tax credits are supposed to be available in states that don’t run their own marketplaces.

The Department of Health and Human Services has published detailed, state-by-state information on what people are paying for their insurance this year—and what they would pay without the tax credits. From that, it’s possible to calculate the average increase these people would face instantly if the tax credits vanished. That's a crude-but-reasonable proxy for what would happen next year, if the Court rules in favor of the lawsuit, since insurance prices aren't changing that much.

This map shows what that would mean for each of the affected states:

The most extreme increase, by far, would be in Mississippi, where the average monthly premium would go from $23 to $438. That's an increase of 1800 percent. The likely reason is that Mississippi is a particularly low-income state, with many people who qualify for very large subsidies, deeply discounting the premiums they pay. The smallest increase would be in Arizona, where the average monthly premiums would go from $113 to $272, an increase of "just" 141 percent. The average increase in monthly premiums, across all states, would be from $82 to $346. That's a 322 percent hike. And, remember, projections show that most people now getting subsidies will not be able to pay the higher prices.

You can follow this link to see numbers for each state, based on data from earlier this year I got from HHS and the Kaiser Family Foundation. But go back to that map for a second. Notice a pattern? Nothing would happen in states on the West Coast and in much of the Northeast, plus Kentucky, Colorado, and Minnesota—because those states all created their own marketplaces. The premium increases would hit in the other states, and they’d generally be largest across the South, for the same reason they are high in Mississippi: Those states have large numbers of lower income people, who qualify for more assistance.

This regional breakdown, which Greg Sargent observed on Monday, could have political implications. If the Court rules in favor of the lawsuits, it would likely create a political crisis, with Republicans from red states facing cross-cutting pressures. They'd hear it from conservatives out to kill Obamacare, of course, but they'd also face an outcry from constituents, many of them middle-class, losing coverage and demanding action. Officials would also get intense lobbying from hospitals, insurers, and much of the business community, all of whom would want states or the Congress to figure out some kind of workaround.

Keep in mind that the map and the table significantly understate the impact of removing the tax credits, because of a secondary effect that would take place. If large numbers of people drop coverage, insurers would have a much harder time keeping a stable balance of healthy and sick people. That would force them to raise underlying premiums, scaring off yet more people. A version of the infamous actuarial “death spiral” would follow: Lower enrollment would lead to yet higher premiums—which, in turn, would lead to even lower enrollment.

A study from the RAND Corporation estimated that, with lower participation and thus a more imbalanced risk pool, the underlying premiums for people buying coverage on their own would go up by an average of 43 percent—and, again, that's above and beyond the increase people with subsidies would feel because they'd lost their tax credits. Their study was based on removing subsidies from all states, but the effect of a Court ruling would be similar. “If subsidies are eliminated entirely, our research predicts substantial disruption in the individual health insurance market,” says Christine Eibner, senior economist at RAND and lead author of the study. “Without the subsidies, prices would jump sharply and many people simply could not afford to enroll.”

Estimates by MIT economist Jonathan Gruber, cited in an amicus brief that several dozen health policy experts filed, suggest that the end result would be 7 million more people without insurance, relative to what the Affordable Care Act would have otherwise achieved. And that wouldn't be the limits of the damage. “These premium subsidies are the core of the Affordable Care Act, and without them the law simply couldn’t function,” says Larry Levitt, a senior vice president at the Kaiser Family Foundation. “If the Court goes in that direction, something would have to give, either in the states or in Congress.”

The negative effects of yanking subsidies in these states would dwarf the "rate shock" that took place and caused such an outcry last year, when new regulations about pre-existing conditions and comprehensive benefits drove up the underlying cause of coverage. Of course, officials could react to a Court ruling by scaling back or stripping away those protections. That would truly restore the status quo in these states.

It would recreate an insurance market in which underlying premiums were frequently low, to the advantage of some young and healthy people who don't want or need much coverage. It would also create an insurance market in which people with pre-existing conditions could not buy insurance on their own, people priced out of the market would have no meaningful financial assistance, and policies would frequently have skimpy benefits exposing people to financial ruin. As a result, many fewer people would have insurance overall.

Many conservatives and libertarians would prefer this. They say that downsides of Obamacare—like the fact that tax credits are financed through a combination of spending cuts and taxes—are much worse than the upsides. If the Court rules in favor of the King lawsuit, the residents of 37 states may get to decide for themselves whether that view is right.

Update: The figure for 7 million more uninsured is relative to coverage levels three years into implementation. I've revised the wording of the reference to make that clear. I also added my usual note about the fact that the subsidies, which reduce what people pay for insurance, aren't free: They come from the law's cuts and revenue, which include reductions in Medicare and higher taxes on the rich. Finally, the original figures on percentages mistated the amounts as "increases." The arithmetic has been corrected.